That’s how insurance works for all kinds of policies, not just life! You pay an insurance company a smaller amount per month/year and they insure you for a larger amount in case a catastrophic event that’s out of your control were to happen. Because the insurance company collects smaller premiums from so many people, they have the money to pay out on claims in event of a loss.
Think of it this way: you might pay your insurance company $40-200 a month to insure your car, depending on the year, make, and model. That might feel like a lot of money to you depending on your budget, but if you were to total your brand new car you probably wouldn’t be able to pay tens of thousands of dollar upfront to pay off the loan, let alone pay all the legal fees and settlements you might face if you were to be sued after hitting somebody and injuring or killing them.
It’s the same exact thing for life, it’s just people don’t view insuring their life to be as important as insuring their physical assets.
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